Two weeks ago, I opined that Gold may be in a position to move higher. Since that time, gold has indeed broken out (see chart below) and looks set to continue climbing-at least for the time being. Current market conditions have helped the commodity. As earning continue to disappoint and the economy shrink, traders have flocked to the precious metal.

When Hank Paulson’s bailout bill tanked yesterday traders sold off US in a panic of epic proportions. This makes a defensive portfolio a must. Martin Hutchinson recommends invest in counter-market plays such as the SPDR Gold Trust ETF (NYSE:GLD) or the Rydex Inverse Gov Long Bond Strategy C (MUTF:RYJCX).

Wall Street is on its knees this morning. Lehman Brothers (NYSE:LEH) is out for the count. Merrill Lynch (NYSE:MER) has been sold for a song. And AIG (NYSE:AIG) is living on borrowed time after its stock was pummeled in Friday’s going.

Worse still, according to William Patalon III the wider US economy is sliding into a deep recession.

Martin Hutchinson in Money Morning says that over the long-term oil and agricultural commodities are likely to deflate.

This is because, once the threat posed by the U.S. housing crisis has passed, the Federal Reserve will be forced to increase interest rates to fight inflation. Other countries will follow, which will deflate the commodities boom.